Green Mountain Coffee Roaster Essay

1077 Words May 31st, 2013 5 Pages
Assignment 4-4
Shane Rittenhouse
Acct.310
Ann Remely
6/5/13

Issue
During the fourth quarter of 2010 Green Mountain Coffee Roasters had some accounting irregularities become known to the public. Green Mountain’s problems all started from how they recognized income, though intercompany inventory and third party vendor. After the SEC inquiry, Green Mountain’s accounting irregularities spanned three fiscal years and three fiscal quarters. Starting with fiscal year 2007 and running through the third fiscal quarter of 2010.
In total Green Mountain had five areas of their financial statements in which they did not follow GAAP. The first issue overstated $7.6 million dollars of inventory during the time period, because of an
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With the net result is being an overstated net income, during the company’s record profit and double digit growth years, creating a high dividend for investors. Second FASB code violated is 605-15-25 or Topic-revenue recognition, Subtopic-products, Section-recognition (FASB ASC 605-15-25). With this violation Green Mountain had under accrual incentive programs by $1.4 million dollars and also over accrual incentive programs by $700,000 dollars. Green Mountain had a net overstated income by $700,000 dollars during the fiscal years. Since Green Mountain has taken the “Razor and Blade” sales method, this is an important violation for their investors (Mchugh, 2012). The Razor and Blade sales method is where Gillette brand razors are sold at cost but the company makes its money when the consumer buys the blade. For Green Mountain they are selling the coffee maker at cost, while they hold the patent rights to the K-cup that fits into the coffee maker. The last FASB rule violates is 605-25-25 or Topic-revenue recognition, Subtopic-multiple-element arrangements, Section-recognition (FASB ASC 605-25-25). This violation is from Green Mountain not having the correct cumulative revenue recognition of royalties from a third party vendor. Green Mountain had overstated their income by $1 million dollar form this error, once again overstating the net income of the company.

Analysis Green Mountain was known for being a
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